Sohu.com Inc revealed yesterday that it had become the first Chinese Internet firm to achieve full-year profitability,

The company, listed on the New York NASDAQ sotck market, reported strong financial results in 2003, but its growth of the fourth quarter continued to slow down.

It achieved profits of US$26.4 million, or 66 US cents per share in 2003, compared with a net loss of US$1 million in 2002.

Its annual revenues reached US$80.4 million, a year-on-year growth of 180 per cent.

It had US$142.6 million in cash and marketable securities by the end of 2003.

"2003 has been a year of success for Sohu in building sustainable profitability, while continuing to expand our diversified revenue lines," Charles Zhang, the firm's chairman and chief executive officer, said yesterday.

Sohu's revenues in the fourth quarter stood at US$24.6 million by the end of December with 11 per cent quarter-on-quarter growth. The quarterly profits were US$11.6 million, or 28 US cents per share.

Non-advertising revenues, the biggest revenue pool, reached US$15.1 million, up 13.5 per cent from the third quarter.

Online advertising contributed 39 per cent of Sohu's total revenues in the past quarter at US$9.5 million, but its quarter-on-quarter growth was only 9 per cent.

"It's no surprise that Sohu reached its target in the fourth quarter, but one thing is clear: it can no more enjoy the same growth rate in 2002 now," said Peter Lu, an Internet analyst in Beijing.

The Chinese company's stock price on the NASDAQ gained 3.69 per cent at US$37.91, but shed 12.64 per cent in the after-hours trading after the results were announced.

Michael Yin, an analyst with the Internet industry consulting firm Shanghai iResearch Co Ltd, pointed out that the slowdown of advertising and mobile message growth and increasing competition are major factors to Sohu's low growth rates in the past quarter.

Sohu's guidance for this quarter was another thing that investors were worried about, although Sohu usually gives conservative guidance, Yin believed.

The Chinese Internet firm predicted its first-quarter revenue would be US$25.6-26.6 million with growth of between 4 to 8 per cent growth over the past quarter.

Its online advertising revenue was forecast to be between US$10.2 to 10.6 million with a 7 to 11.5 per cent quarter-on-quarter growth.

Non-advertising revenue, mainly from mobile messages, was expected to reach US$15.4-16 million.

Charles Zhang was upbeat about his company's prospects in 2004.

"We are well-positioned for another successful year, which will consolidate our leading position,'' he said.

He believed the number of Internet users in China would top the 100 million mark this year from the 79.5 million by the end of 2003.

At the same time, the company's advertising business would also be boosted, as Sohu's acquisitions of the game information website 17173.com and the real estate information website Focus.cn would begin to attract more Internet users as well as advertising clients to Sohu.

Zhang said his company's backlog orders for e-marketing including advertising and paid listing services already amounted to US$14.2 million by the end of this year.

He believed the long-term momentum of mobile message service will be strong, as more people will begin to endorse the multimedia messaging service, which enables users to send pictures and videos and cost much more than text messages.

The company launched its first online game Knight Online in mid 2003, but did not gain much success, will release another game -- Blade Online -- in the third quarter.

Charles Zhang said Sohu's objective was to gain a stronghold in the market in this year with the help of its game website 17173.com, one of China's most popular gaming websites.

Sohu's major rivals on the NASDAQ -- Netease.com Inc and Sina Corp are expected to announce their results in the coming weeks.

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